Range Resources Corporation: Q3 2021 Form 10-Q Summary
Business Context and Reporting Period
Range Resources is an independent natural gas, natural gas liquids (NGLs) and oil exploration and production company focused primarily on the Appalachian region. The filing covers the three and nine months ended September 30, 2021, compared with the corresponding 2020 periods. Production averaged 2.1 Bcfe per day in both periods, versus 2.2 Bcfe per day in third-quarter 2020 and 2.3 Bcfe per day for the first nine months of 2020.
Financial Performance and Key Metrics
| Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Natural gas, NGL and oil sales | $849.3 million | $381.6 million | $2.075 billion | $1.163 billion |
| Total revenues and other income | $302.6 million | $299.3 million | $1.363 billion | $1.370 billion |
| Derivative fair value loss | $(652.2) million | $(124.7) million | $(959.8) million | $102.2 million income |
| Loss before income taxes | $(380.0) million | $(785.3) million | $(507.8) million | $(780.0) million |
| Net loss | $(350.3) million | $(748.8) million | $(479.6) million | $(750.2) million |
| Diluted loss per share | $(1.44) | $(3.12) | $(1.98) | $(3.10) |
| Cash flow from operating activities | $191.9 million | $(24.2) million | $475.3 million | $179.0 million |
Production volumes declined 3% in the quarter and 8% for the first nine months. Average realized price including derivative settlements and third-party transportation costs increased to $2.00 per mcfe in the quarter from $0.99, and to $1.71 per mcfe for the nine months from $1.02. The filing does not present a clear GAAP operating margin or EBITDA figure in the provided text.
- Q3 transportation, gathering, processing and compression expense was $296.5 million, up 11%; nine-month expense was $853.7 million, up 3%.
- Q3 general and administrative expense was $49.1 million, up $10.9 million, primarily due to higher legal settlements, stock-based compensation and office expenses.
- Q3 interest expense was $56.8 million; nine-month interest expense was $171.0 million.
- Q3 DD&A expense was $93.1 million; nine-month DD&A expense was $272.1 million, with the DD&A rate declining 2% and 4%, respectively, on a per-mcfe basis.
- Capital expenditures, including acreage acquisitions, were approximately $332.7 million through September 30, 2021, compared with $475.3 million of operating cash flow.
Balance Sheet, Debt and Liquidity
- Cash and cash equivalents were $0.5 million at September 30, 2021, compared with $0.5 million at December 31, 2020.
- Total assets were $6.304 billion and stockholders’ equity was $1.181 billion, down from $1.638 billion at year-end 2020, primarily reflecting the year-to-date net loss.
- Gross debt was $2.980 billion, compared with $3.116 billion at December 31, 2020. Debt net of issuance costs was $2.948 billion.
- The company issued $600.0 million of 8.25% senior notes due 2029 and used the proceeds to repay bank-facility borrowings. Bank debt declined to $30.0 million from $702.0 million at year-end 2020.
- The revolving credit facility had a $3.0 billion borrowing base, $2.4 billion of lender commitments, $30.0 million drawn and $334.6 million of undrawn letters of credit, leaving approximately $2.0 billion of committed availability.
- Current liabilities of $1.646 billion substantially exceeded current assets of $412.4 million. Management stated that operating cash flow, available borrowing capacity, asset-sale proceeds and derivative contracts should satisfy near-term obligations and liquidity needs.
- The company was in compliance with its credit-facility covenants at September 30, 2021. The facility matures April 13, 2023.
Material Changes Versus the Prior Comparable Period
- Commodity prices improved materially: average Q3 NYMEX natural gas, oil and NGL composite prices were $4.01 per mcf, $70.42 per barrel and $0.82 per gallon, respectively, versus $1.95, $40.90 and $0.40 in Q3 2020.
- Natural gas, NGL and oil sales increased 123% in Q3 and 78% for the first nine months, primarily from higher prices, despite lower production volumes.
- Net losses narrowed substantially, although the company remained unprofitable.
- Operating cash flow increased by $216.1 million in Q3 and $296.3 million for the first nine months.
- Derivative fair value results deteriorated because higher commodity prices reduced the reported value of fixed-price and other hedge positions. The net derivative liability was approximately $776.1 million at September 30, 2021.
- Q3 exit and termination costs fell to $11.8 million from $521.6 million in 2020. The prior-year amount largely reflected obligations retained after the North Louisiana asset sale.
- There were no proved-property impairment charges in 2021, compared with $79.0 million in the first nine months of 2020, and the prior-year period included a $112.4 million gain on asset sales.
- Deferred compensation plan expense increased to $34.3 million in Q3 and $89.6 million for the nine months, primarily because of the rise in Range’s share price.
Guidance, Outlook, Commentary and Risks
- Management’s 2021 capital budget was $425.0 million and its stated objective was to fund capital spending at or below operating cash flow.
- Management described the near-term natural gas price outlook as generally favorable but expects continued commodity-price volatility due to supply and demand conditions, LNG exports, associated-gas activity, OPEC actions, COVID-19 developments and energy-transition policies.
- More than 65% of projected production for the remainder of 2021, including more than 75% of projected natural gas production, was hedged at September 30, 2021. Contracts extended through December 2023, with some basis swaps through December 2024.
- Management targets net-zero direct greenhouse-gas emissions by 2025 and intends to continue emphasizing disciplined capital investment, operating efficiency, liquidity management, debt reduction and hedging.
- Retained gathering, transportation and processing obligations from the North Louisiana disposition were estimated at $426.6 million on a discounted basis at September 30, 2021, with obligations extending through 2030.
- The company retained a divestiture contract obligation of $334.5 million on the balance sheet and recorded a $28.2 million favorable estimate adjustment during the second quarter.
- Risks include commodity-price and basis volatility, derivative counterparty performance, limited regional NGL infrastructure and ethane marketing capacity, production declines, debt maturities and covenants, environmental and regulatory requirements, litigation and potential changes in energy policy.
- A shareholder class action alleges misclassification of certain wells and related asset-retirement-obligation disclosures. Management considers the claims baseless and is seeking dismissal. A separate Pennsylvania environmental matter could result in monetary sanctions exceeding $250,000, although the ultimate outcome is uncertain.
Important Facts for Investors to Verify
- Reconcile reported natural gas, NGL and oil sales with the much lower total-revenue figure after derivative fair value losses.
- Evaluate the effect of the approximately $776.1 million net derivative liability, including cash settlements and future hedge floors, ceilings and swap prices.
- Review debt maturities, refinancing requirements and the April 2023 credit-facility maturity, particularly in light of minimal cash balances and negative working capital.
- Assess whether operating cash flow can consistently fund the $425.0 million capital budget while reducing debt and maintaining production.
- Quantify exposure to the $426.6 million discounted divestiture-related obligations and the timing of required payments through 2030.
- Monitor commodity prices, production volumes, NGL and ethane takeaway capacity, derivative counterparty credit quality and covenant compliance.
- Follow developments in the shareholder litigation, Pennsylvania environmental proceeding and other legal or regulatory matters.